VW Braces for Investor Pressure on Diesel Clean-Up Concerns

(Bloomberg) -- When Volkswagen AG’s Porsche brand agreed last week to pay $600 million to end a probe into rigged diesel engines, it highlighted the German auto giant’s struggles to move past the 2015 emissions-cheating scandal and provided fresh fodder for disgruntled shareholders.

Volkswagen’s clean-up efforts -- still lacking a thorough explanation into the roots of the crisis that has so far cost the company 30 billion euros ($33.7 billion) -- will be the focus of investor ire when the company holds its annual meeting in Berlin on Tuesday. Even though the automaker is insulated by its large owners, corporate-governance advisers Institutional Shareholder Services and Glass Lewis urged investors to vote against VW’s leadership at the gathering.

In light of fines and indictments against the company, senior management and supervisory-board members should be held accountable “for material failures of governance, stewardship, risk oversight, and fiduciary responsibilities at the company,” ISS said in a note, recommending a vote against executives for fourth consecutive year.

“We will vote against discharging Volkswagen’s management and supervisory board due to longstanding issues related to the company’s corporate governance and compliance systems,” Ulrich Hocker, president of German retail shareholder association DSW, told Bloomberg News. The group mainly represents investors holding non-voting preferred stock but also a smaller number of common shares, he said.

A VW warning would be the latest sign of investors seeking to shake up board rooms across Germany. At Bayer AG’s annual meeting in April, shareholders hit management with a stinging rejection. In February, a long-simmering feud between Uniper SE and its largest shareholder ended with the resignation of the power company’s two top executives.

While smaller investors may seek to ramp up pressure on Chief Executive Officer Herbert Diess -- under the gun to deliver a broad overhaul at VW -- they ultimately have little power at the Wolfsburg-based company. The descendants of Ferdinand Porsche -- creator of the VW Beetle -- own 53% of the common stock, while the German state of Lower Saxony holds 20% and Qatar 17%.

There’s little doubt that those three anchor shareholders will back management. That means the main pressure point at VW remains internal strife between management and the group’s powerful labor representatives, as they battle over the company’s future.

‘Convincing’ Results

The main issue for investors is Volkswagen’s efforts to shore up its compliance procedures and the legal risks that continue to hang over the company from the diesel scandal. But in terms of operations, the company has held up. First-quarter operating profit rose 15%, despite global trade tensions and heavy investments in electric cars.

The solid performance has won over some investors. Shareholder rights group SdK plans to vote in favor of discharging management’s actions at the meeting, calling the company’s 2018 results “convincing.”

“The group’s focus on topics of the future has continued,” so management deserves backing, SdK said on its website. “With the shift to electric mobility, the group will change significantly in the future.”

©2019 Bloomberg L.P.

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